Ellis & Ellis CPAs | TaxConnections

10 May 2022

Dividing Property In A Divorce Tax Traps – Part 2 In Series

Tax Aspects Of Dividing Property In A Divorce (Series – Part 2)

This valuable series on Dividing Property In A Divorce Tax Traps has been updated for the Tax Cuts And Jobs Act (TCJA) and the Cares Act. This series is provided by David Ellis of Ellis & Ellis CPAs in Pasadena, CA.

Major Exceptions to Nonrecognition of Gain or Loss
1. Transfers to trust in which property’s liabilities exceed basis.[1]
  1. Gain is recognized by transferor.
  2. Gain equals the amount by which property’s liabilities exceed basis.
  3. Trust increases its’ basis in the transferred property by the amount of gain
2. Transfer to Trust of Installment Instrument
  1. Transferring spouse recognizes untaxed built in gain upon transfer.^[2]
  2. Trust takes carryover basis plus trust gets increase in basis by the amount of gain recognized by transferee.[3]
  3. Post transfer interest income paid on installment instrument is taxable to trust.[4]
  4. Example: Transfers to Trust in Which Liabilities Exceed Basis.

Ward and June are in the process of getting a divorce. Ward inherited as separate property, a Japanese Samurai Sword that his grandfather brought back from World War I as a war trophy. The sword has an estimated Fair Market Value of $750,000.

Ward’s basis in the sword is $100,000, and he has pledged it as security for a business loan in the amount of $500,000. As part of the divorce settlement, Ward transfers the sword to a trust for the benefit of June. The trust assumes the loan on the sword. Ward must recognize a gain of $400,000 on transfer calculated as follows:

Written by David Ellis | Posted in Dividing Property In Divorce Tax Traps • Taxes And Divorce

06 May 2022

Dividing Property In A Divorce Tax Traps – Part 1 In Series

David Elllis CPAs - Tax Aspects Of Dividing Property In A Divorce

Dividing property during divorce may be one of the most difficult issues faced by tax planners. While most professionals are familiar with the general rule that property transferred during marriage and/or divorce proceedings is usually tax free [1], they may be less aware of the many thorny tax pitfalls that await the unwary. As with most tax matters, “the devil is in the details”. Issues such as how property is held, basis, depreciation, tax credit recapture, and holding period, are but a few of the problems that will confront tax practitioners in a divorce engagement.

Sometimes the tax impact of decisions made during divorce proceedings will not be realized, much less recognized, until many years down the road. Other times, the tax consequences may be just around the corner. The purpose of this course is to arm practitioners with the knowledge that will help them see what is coming down that road, or around that corner… while there is still time to do something about it.

I. The Big Rule – Code Section 1041 Overview

Written by David Ellis | Posted in Dividing Property In A Divorce Tax Traps • Tax Aspects Of Dividing Property In A Divorce

04 Aug 2021

Radio Show Host Talks His Way To A Win In Tax Court On Employment Status: Employee V. Independent Contractor

A radio show host demonstrated that he could talk as well in tax court as he could in front of a microphone. At issue was the question of whether or not a person can be an employee as well as an independent contractor simultaneously with the same employer.

During 2007, Juan A. Ramirez was employed by Univision as an on-air talent and program director for radio station KXTN in San Antonio, Texas. In addition, to hosting a five-hour, six days a week radio program, his contract also called for him to perform various other duties.

These duties included working as an announcer at the radio station, attending staff meetings, and promoting the station in general by making off air appearances. For those services, Mr. Ramirez received a base salary, bonuses and stock options in Univision, the parent company of KXTN. Ramirez’s employment agreement stated that his work was subject to the control of Univision and that he was to live up to Univision’s professional standards in all aspects.

Written by David Ellis | Posted in Employee V. Independent Contractor